Conoco Says Output to Hit Low Point in 2013 After Sales

Jan. 31 (Bloomberg) -- ConocoPhillips said oil and natural
gas production in 2013 will reach a low point during a multi-year restructuring and asset sales program, prompting the
biggest drop in the company’s share price since 2011.

Daily output from continuing operations may decline to as
little as 1.475 million barrels of oil equivalent this year
because of production lost through asset sales, compared with
1.527 million barrels in 2012, Houston-based ConocoPhillips said
in a statement yesterday. When counting only the assets that
will remain in ConocoPhillips’s portfolio, last year’s
production was 1.497 million barrels a day, the company said
today.

By the end of the year, the company will see production
growth from new projects and some North American programs,
Chairman and Chief Executive Officer Ryan Lance told analysts on
a conference call today. The company said it still expects to
achieve a goal of boosting production by 3 percent to 5 percent
compounded annually in future years.

“Production will decline in ’13, and they will need to
show as we move forward that they can grow off that 2013 base,”
said Brian Youngberg, an analyst with Edward Jones in St. Louis
who has a buy rating on ConocoPhillips shares and owns none.

ConocoPhillips fell 5.1 percent to $58 at the close in New
York. The stock earlier fell as much as 5.4 percent, the biggest
intraday drop since Aug. 18, 2011.

Restructuring Plan

The company is the largest U.S. oil and gas producer, based
on market value, that doesn’t have refineries or a chemical
unit. ConocoPhillips has been selling assets and remaking itself
for more than three years as it seeks to boost returns for
shareholders and focus on its most profitable holdings.

On Jan. 15, ConocoPhillips said it agreed to sell certain
assets in North Dakota and Montana, bringing to about $12
billion the sales it’s announced since the start of last year
and surpassing a target of $8 billion to $10 billion for 2012
and 2013 combined. The company said it may still look to reduce
its holdings in oil sands and the Australia Pacific liquefied
natural gas project.

Providing production forecasts has been tough because of
uncertainty about which assets were going to be sold, Chief
Financial Officer Jeff Sheets said in a telephone interview
today. The picture is clearer now, though the timing of some
sales still isn’t certain. ConocoPhillips now sees growth
beginning toward the end of 2013, he said.

Outlook Unchanged

“This is the same message we’ve been talking about over
the long term,” Sheets said. “Our long-term production outlook
has not changed.”

The company believes its strategy for production growth is
the right one, and it sees value in the diversification and size
of its portfolio, Sheets said.

ConocoPhillips created a separate company, Phillips 66, by
spinning off its refining, chemical and pipeline businesses
April 30. Fourth-quarter net income at ConocoPhillips didn’t
include earnings from its former operations, though they were
included in results a year earlier.

ConocoPhillips reported yesterday that fourth-quarter
profit fell after it lost the income of its refining business in
last year’s spinoff, and growing North American supplies of oil
and gas pushed down prices.

Profit Fell

Net income dropped to $1.43 billion, or $1.16 a share, from
$3.39 billion, or $2.56, a year earlier, the company said.
Profit excluding one-time costs and gains fell to $1.76 billion,
or $1.43 a share, from $2.05 billion, or $1.55. Adjusted per-share profit in the quarter was a penny more than the average of
18 analysts’ estimates compiled by Bloomberg.

The company reported a drop in realized prices from a year
earlier across parts of its portfolio, including a 2.7 percent
decline in crude to $103.08 per barrel. Natural gas liquids
prices fell 18 percent, while bitumen prices tumbled 31 percent.
ConocoPhillips’s daily production in the fourth quarter climbed
less than 1 percent to the equivalent of 1.607 million barrels
of oil.

Adjusted revenue climbed 1.5 percent from a year earlier to
$16.4 billion in the quarter.

The company continued to shift its focus to oil and
liquids. In Canada and the lower 48 U.S. states, the liquids
percentage of production rose to 48 percent from 43 percent.
ConocoPhillips said output is rising in its Eagle Ford and
Bakken holdings in the U.S.

Asset sales have boosted the outlook for ConocoPhillips’s
ability to fund projects and dividends in the next few years,
James Sullivan, an analyst with Alembic Global Advisors in New
York, said before the earnings were announced.

In a note today, Sullivan called the share decline
“unwarranted,” adding that any production growth this year
would be positive given the effects of asset sales and downtime
related to new facilities.